In what indicates India's growing clout on the world stage, the leaders of the Group of Twenty agreed to act urgently upon each of the three major issues raised by Indian Prime Minister Manmohan Singh, namely:
- the need for greater inclusivity for emerging markets in the international financial system,
- need to ensure that the growth prospects of the developing countries are not hampered, and
- the need to avoid protectionist tendencies
The response of the world's top leaders to the global financial storm -- the most severe since the Great Depression -- also points towards how India has managed to turn a crisis into an opportunity to smartly push through its agenda of accruing to itself a larger say in the world's economic matters.
The G20 leaders said in a draft communique on the Summit on Financial Markets and World Economy that they were determined to enhance co-operation and work together to restore global growth and achieve the much-needed reforms in the world's financial systems.
The G20 leaders said that rejection of protectionism and turning inward in such uncertain times was of critical importance, and agreed to refrain from raising new barriers to investment or trade in goods and services, or to impose new export restrictions, or implement inconsistent measures to stimulate exports. They would also strive
to work on modalities that lead to a successful conclusion to the WTO's Doha Development Agenda.
Stating that they were mindful of the impact of the current crisis on developing countries, the G20 leaders reaffirmed the importance of Millennium Development Goals, the need to address critical challenges like energy security and climate change, food security, rule of law, and the battle against terrorism, poverty and disease.
The G20 also agreed, as suggested by India, to comprehensively reform international financial institutions so that they reflect changing economic weights in the world economy and give greater voice to emerging and developing markets. The leaders said that IMF and other international organisations should provide capacity-building programmes for emerging markets.
Agreeing upon the need for a broader policy response, based on closer macroeconomic cooperation, to restore growth, avoid negative spillovers and support emerging market economies and developing countries, the G20 put forth a 6-point agenda to face short- and long-term challenges. The G20 agreed to:
- Help emerging and developing markets gain access to finance in the current difficult financial conditions, including through liquidity facilities and programme support.
- Use fiscal measures to stimulate domestic demand to rapid effect while maintaining policy framework conducive to fiscal sustainability.
- Recognise the importance of monetary policy support as deemed appropriate to domestic conditions.
- Continue the vigorous efforts and whatever further actions are necessary to stabilise the financial system.
- Encourage the World Bank and other multilateral development banks to use their full capacity in support of their development agenda, and the introduction of new facilities in the areas of infrastructure and trade finance.
- Ensure that the International Monetary Fund, the World Bank and other MDBs have sufficient resources to continue playing their role in overcoming the financial crisis.
Apart from this plan, the G20 also agreed to implement reforms that will strengthen financial markets and regulatory regimes to avoid future crises. The G20 pledged to:
Strengthen financial market transparency by enhancing required disclosure on complex financial products and ensuring complete and accurate disclosure by firms of their financial conditions.
Incentives should be aligned to avoid excessive risk-taking.
Towards this end:
The key global accounting standards bodies should work to enhance guidance for valuation of securities
Accounting standards setters should address weaknesses in accounting and disclosure standards for off-balance sheet vehicles.
Regulators should enhance the required disclosure of complex financial instruments by firms to market participants.
The governance of international accounting standards body should be enhanced to promote financial stability.
Private sector bodies that have already developed best practices for private pools of capital and/or hedge funds should bring forward proposals for a set of unified best practices.
Strengthen regulatory regimes, prudential oversight and risk management, and ensure that all financial markets products and participants are regulated or subject to oversight as appropriate to their circumstances.
Strong oversight of credit rating agencies will be exercised consistent with agreed international code of conduct.
The IMF, expanded FSF, and other regulators should develop recommendations to mitigate pro-cyclicality, including the review of how valuation and leverage, bank capital, executive compensation, and provisioning practices may exacerbate cyclical trends.
Protect the integrity of the world's financial markets by bolstering investor and consumer protection, avoiding conflicts of interest, preventing illegal market manipulation, fraudulent activities, and protecting against illicit finance risks arising from non-cooperative jurisdictions.
Formulate regulations at the national and regional levels and enhance coordination and cooperation among nations across all segments of financial markets. The FSF should expand to a broader membership of emerging economies.
The IMF and the FSF should strengthen collaboration to better integrate regulatory and supervisory responses into the macro-prudential policy framework and conduct early warning exercises.
The IMF should draw lessons form the current crisis.
The adequacy of IMF's resources should be reviewed and the World Bank and other MDBs should be ready to increase them when necessary.
Advance reform of the Bretton Woods Institutions (World Bank, IMF) so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness.
Expand the Financial Stability Forum and allow broader membership of emerging economies. The IMF, along with the expanded FSF and other bodes, should work to better identify vulnerabilities, anticipate potential stresses and act swiftly to play a key role in crisis response.
The G20 also set a deadline to completing high priority actions prior to March 31, 2009 The G20 decided to meet again by April 30, 2009 to review implementation of the principles and decisions agreed at the Washington Summit.
